Hansen v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 18 May 1998
• Docket Number: No. 96SC716,96SC716
• Citation: 957 P.2d 1380
• Parties: Linda HANSEN, Petitioner, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent.
• Court: Colorado Supreme Court

Page 1380

957 P.2d 1380

Linda HANSEN, Petitioner, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent.

No. 96SC716.

Supreme Court of Colorado En Banc.

May 18, 1998.

Holland & Hart LLP, A. Bruce Jones, Marcy G. Glenn, Stephanie D. Welsh, Denver, Peter Schild, Boulder, for Petitioner.

Seaman and Giometti, P.C., Gregory R. Giometti, Thomas J. Seaman, Karl A. Chambers, Denver, for Respondent.

Justice KOURLIS delivered the Opinion of the Court.

This appeal arises out of a jury verdict for Petitioner, Linda Hansen, on her claims against State Farm Mutual Automobile Insurance Company (State Farm) for breach of contract for failing to pay Personal Injury Protection (PIP) benefits and for bad faith. One of the principal issues at trial was whether State Farm's request that Hansen submit to an examination by physicians of its choosing was reasonable, and whether Hansen's failure to do so defeated her request for coverage and her assertion of bad faith. The court of appeals reversed the trial court judgment and remanded for a new trial based upon jury instruction error. See Hansen v. State Farm Mut. Auto. Ins. Co., 936 P.2d 584 (Colo.App.1996).

We granted review of the court of appeals' rulings on the claimed instructional errors. ¹ We now hold that the trial court satisfied its obligation to instruct the jury, both with respect to its decision not to give the tendered independent medical examination (IME) instruction and with respect to the inducement instruction as given. For these reasons, we reverse the judgment of the court of appeals.

I. FACTUAL AND PROCEDURAL BACKGROUND

Hansen was involved in two automobile accidents, on August 31, 1991 and April 25, 1992 respectively. She sustained multiple injuries in both accidents. At the times of the accidents, Hansen was insured with State Farm and claimed benefits under the no-fault provision of her policy. State Farm initially paid certain benefits under the policy and later declined to do so. Hansen filed suit for breach of contract and bad faith.

Hansen's policy with State Farm provided, in pertinent part:

REPORTING A CLAIM--INSURED'S DUTIES

4. Other Duties Under No-Fault, Uninsured Motor Vehicle and Death, Dismemberment and Loss of Sight Coverages.

The person making the claim also shall: ...

b. be examined by physicians chosen and paid by us [State Farm] as often as we reasonably may require....

2. Suit Against Us.

There is no right of action against us:

a. until all the terms of this policy have been met....

(Emphasis in original.)

State Farm was concerned that Hansen's requests for medical expenses were not reasonable or necessary. At State Farm's request, Hansen underwent one IME in November of 1991 with a chiropractic orthopedist and another IME in April of 1992 with an ophthalmologist. In May of 1992, State Farm notified Hansen that she would need to attend another IME with an orthopedic surgeon. Hansen arrived at the doctor's office for the scheduled appointment with the orthopedic surgeon, but refused to be examined unless a nurse observer was also present. State Farm's surgeon would not agree to proceed with the examination in the presence of a third person, hence, no orthopedic examination took place. In September 1992, State Farm notified Hansen that she would be required to attend a psychiatric IME. Through counsel, Hansen requested a resume of State Farm's psychiatrist's qualifications and permission to have a nurse observer attend the exam. State Farm did not respond to the requests; hence, the psychiatric IME also never occurred.

The matter was tried to a jury in July 1994. At trial, State Farm took the position that Hansen had failed to satisfy a condition precedent to her coverage by not attending the orthopedic and psychiatric IMEs. According to State Farm, Hansen's conduct defeated her right to recovery on both the breach of contract and bad faith claims. In support of this position, State Farm tendered a jury instruction modeled after Jensen v. American Family Mutual Insurance Co., 683 P.2d 1212 (Colo.App.1984), which provided:

Compliance with the physical examination requirements of the State Farm insurance policy is a condition precedent to plaintiff's recovery of benefits under the policy. If you find that State Farm's request that plaintiff attend examinations by Dr. Barry Lindenbaum [State Farm's orthopedic surgeon] and/or Dr. I. Gene Schwarz [State Farm's psychiatrist] was reasonable under the circumstances of this case and that plaintiff failed to be examined by Dr. Lindenbaum or Dr. Schwarz, then plaintiff is not entitled to recover benefits under her policy of no-fault insurance and your verdict must be in favor of defendant and against plaintiff. On the other hand, if you find that State Farm's request for plaintiff to be examined by Dr. Lindenbaum and Dr. Schwarz was not reasonable under the circumstances, or that plaintiff complied with State Farm's request to submit to these examinations, then you may consider whether plaintiff is entitled to recover benefits under her policy of no-fault insurance.

On the morning of the last day of trial, the court conferred with counsel about jury instructions. Hansen objected to the above instruction on two grounds: (1) because it focused on the reasonableness of the requests that Hansen undergo additional IMEs, without reference to the reasonableness of the terms and conditions of those IMEs; and (2) because it characterized the IME examination question as the sole issue of the case, dispositive of both the breach of contract and bad faith claims. Hansen argued in part that evidence of bad faith preceded the IME controversy, and would not in any event be defeated by Hansen's failure to undergo the IMEs. State Farm maintained that Hansen's failure to submit to the IMEs was a failure to satisfy a condition precedent under the insurance contract, which relieved State Farm of any duty to pay benefits.

At the jury instruction conference, the trial judge agreed with Hansen that the tendered instruction was "not a successful attempt to explain this area of the law" and suggested that State Farm's counsel tender a revised instruction. At that point, the following dialogue ensued:

State Farm's counsel: At this point in time, I really don't have time to redraft this, so I guess this is the instruction that I'm submitting.

Court: Okay. So, if this is what you want to stand on, the Court will reject this instruction for the reasons I indicated.

Counsel did not request additional time to correct the tendered instruction nor did counsel request any further clarification of what the court would have required. The court marked its rejection on the face of the tendered instruction with a note that read: "Court would have (1) accepted a statement of the contract term and (2) the holding in Jensen [v. American Family Mutual Insurance Co., 683 P.2d 1212 (Colo.App.1984) ]. Defendant chose not to submit such an instruction."

Additionally, Hansen proposed the following instruction regarding inducement, which the court gave over State Farm's objection:

The Plaintiff, Linda Hansen, is not legally responsible to the Defendant, State Farm Mutual Automobile Insurance Company, on the Defendant's claim that she breached the contract by not seeing Dr. Swarz [sic] if the defense of inducing a breach of contract is proved. This defense is proved if you find both of the following:

(1) By words or conduct, or both, the Defendant caused the Plaintiff not to perform her obligation as required by the claimed contract; and

(2) The Defendant actually knew there was a substantial likelihood its words or conduct, or both, would have that result.

State Farm objected to the inducement instruction because it had not made a claim for breach of contract. The trial court concluded that the instruction was accurate and supported by the evidence.

The jury returned verdicts in favor of Hansen on both her breach of contract and bad faith claims. The court entered judgment on the jury's verdicts.

State Farm appealed to the court of appeals arguing that the trial court erred in not instructing the jury, pursuant to Jensen, that Hansen's failure to submit to the orthopedic and psychiatric IMEs was a failure to satisfy a condition precedent under the policy. The relevant provision in the Jensen policy provided: "[N]o action shall lie against the company unless as condition precedent thereto ... [t]he eligible person ... submit[s] to physical and mental examinations by physicians selected by the company, when and as often as the company may reasonably require." Jensen, 683 P.2d at 1213. The issue before the court of appeals was whether the condition of the insurer's PIP policy conditioning payment of benefits upon an IME was an impermissible restriction of the coverage specified by the Colorado Auto Accident Reparations Act (the No-Fault Act). See id. The court of appeals held that under the policy before it, the plaintiff's compliance with the physical examination provision was a condition precedent to her recovery of benefits and that the provision did not violate the No-Fault Act. See id. at 1214.

Here, the court of appeals concluded that the trial court should have given an instruction on Hansen's obligation to submit to a reasonably requested IME. See Hansen, 936 P.2d at 589. It reasoned that when a party tenders an instruction supported by the evidence and applicable law, the trial court becomes obligated to give a correct instruction, regardless of whether the party's instruction "is correct in form." Id. at 587. The court of appeals relied on Davis v. Cline, 177 Colo. 204, 493 P.2d 362 (1972), for the proposition that a party is entitled to a theory of the case instruction even where counsel fails to tender an "entirely suitable instruction." Id. at 210, 493 P.2d at 365. The court of appeals held that the trial court's failure to so instruct the jury constituted prejudicial error warranting a new trial. See H...